Cloudflare Appeal Highlights Delaware Chancery Court’s Persistent Judicial Overreach
Recent judicial interpretations of good faith threaten to undermine Delaware’s new corporate code reforms.
1Chancery Court Controversy
Vice Chancellor J. Travis Laster recently certified an interlocutory appeal regarding his ruling on Cloudflare’s capital structure. Despite the board meeting all requirements set by the new Senate Bill 21, Laster enjoined the transaction. This decision highlights a growing tension between legislative intent and judicial interpretation within Delaware’s influential legal system.
2Legislative Intent of SB 21
Passed in March 2025, Senate Bill 21 serves as a major rewrite of Delaware’s corporate code. The law aims to provide predictability by protecting independent board decisions from judicial interference. However, Laster’s recent opinion effectively bypasses these protections by applying a novel, expansive definition of the term good faith.
3Redefining Good Faith Standards
Historically, Delaware law defined bad faith as intentional dereliction of duty or conscious disregard for responsibilities. Laster’s ruling deviates from this precedent by citing the use of encrypted messaging apps and CEO temperament as evidence of a controlled mindset. These factors do not meet the traditional legal threshold of willful misconduct.
4Subjectivity in Judicial Review
The court acknowledged that the Cloudflare board was independent and diligent, yet still found them in bad faith. This creates a dangerous precedent where statutory protection depends on a judge’s personal perception of witness credibility. Such uncertainty is a primary driver for companies seeking to reincorporate in other jurisdictions.
5Questionable Fact-Finding Methods
Laster’s ruling relied on a one-hour hearing based solely on a paper record, without meeting the involved parties. He also characterized academic research on dual-class shares in ways that contradict the actual evidence presented. This lack of firsthand insight complicates the upcoming review by the Delaware Supreme Court.
6History of Judicial Reversals
The Delaware Supreme Court has reversed Laster in over 30 instances, yet cases are frequently remanded back to his courtroom. The Boardwalk Pipeline litigation, for example, has remained unresolved for eight years due to this cycle. This process imposes massive financial costs and operational distractions on the companies involved in litigation.
7Lack of Accountability Mechanisms
In the 2019 Aruba decision, the Supreme Court issued a rare rebuke of Laster’s results-oriented reasoning. Despite such criticism, the court has not exercised its power to reassign remanded cases to different judges. This failure to change venue allows the same judge to repeatedly derail transactions using unique, novel legal theories.
8Future Outlook for Boards
Until the Supreme Court establishes a predictable definition of good faith, directors face significant risks. Sound processes and independent committees may no longer guarantee protection against judicial injunctions. Boards must recognize that current Delaware legal standards remain volatile, necessitating extreme caution when structuring capital and communicating sensitive strategic information.